Cook v Deeks
Directors who diverted to themselves a contract that belonged in equity to the company held the benefit on trust for it, and the majority shareholders could not ratify their breach.
Facts
The Toronto Construction Company had four directors, who were also its shareholders. Three of them, who held three quarters of the shares, negotiated a contract with a railway company in the company's name, but then took the contract for themselves, through a new company. They then passed a resolution of the company's shareholders declaring that the company had no interest in the contract. The fourth director sued them.
Legal principle
The Privy Council held that the directors held the benefit of the contract on trust for the company. Lord Buckmaster LC said that the contract belonged in equity to the company, and the directors could not take it for themselves. They could not use their majority votes to make a present to themselves of the company's property, because that would be a fraud on the minority. The breach could not be ratified by the majority shareholders, because it involved the misappropriation of the company's property.
Related cases on directors' duties: conflicts of interest
- Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461
- Bhullar v Bhullar [2003] EWCA Civ 424, [2003] 2 BCLC 241
- CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704
- Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200
- Fulham Football Club Ltd v Cabra Estates plc [1994] 1 BCLC 363
- Guinness plc v Saunders [1990] 2 AC 663
- Imageview Management Ltd v Jack [2009] EWCA Civ 63, [2009] Bus LR 1034
- Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
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